Is Mueller Industries, Inc. (NYSE:MLI) Potentially Undervalued?

Mueller Industries, Inc. (NYSE:MLI), might not be a large cap stock, but it received a lot of attention from a substantial price movement on the NYSE over the last few months, increasing to US$39.73 at one point, and dropping to the lows of US$35.07. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Mueller Industries' current trading price of US$37.71 reflective of the actual value of the mid-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Mueller Industries’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

Check out our latest analysis for Mueller Industries

What Is Mueller Industries Worth?

Good news, investors! Mueller Industries is still a bargain right now according to my price multiple model, which compares the company's price-to-earnings ratio to the industry average. I’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 6.88x is currently well-below the industry average of 19.63x, meaning that it is trading at a cheaper price relative to its peers. However, given that Mueller Industries’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us another chance to buy in the future. This is based on its high beta, which is a good indicator for share price volatility.

Can we expect growth from Mueller Industries?

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. However, with an expected decline of -5.8% in revenues over the next year, short term growth isn’t a driver for a buy decision for Mueller Industries. This certainty tips the risk-return scale towards higher risk.

What This Means For You

Are you a shareholder? Although MLI is currently trading below the industry PE ratio, the adverse prospect of negative growth brings about some degree of risk. I recommend you think about whether you want to increase your portfolio exposure to MLI, or whether diversifying into another stock may be a better move for your total risk and return.

Are you a potential investor? If you’ve been keeping an eye on MLI for a while, but hesitant on making the leap, I recommend you research further into the stock. Given its current price multiple, now is a great time to make a decision. But keep in mind the risks that come with negative growth prospects in the future.

So while earnings quality is important, it's equally important to consider the risks facing Mueller Industries at this point in time. For example, we've discovered 1 warning sign that you should run your eye over to get a better picture of Mueller Industries.

If you are no longer interested in Mueller Industries, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.